Slovenia

Launch of the OECD Economic Survey of Slovenia 2017

Remarks by Angel Gurría

OECD Secretary-General

5 September 2017

Ljubljana, Slovenia

Madam Minister,

Dear Colleagues,

Ladies and gentlemen,

I am delighted to be in Ljubljana to present the OECD Economic Survey of Slovenia. Yesterday, I was privileged to meet with President Pahor and Prime Minister Cerar in Bled, where I remarked on the tremendous improvement in Slovenia’s economy since my last visit only two years ago.

Growth has accelerated to a pace exceeding many other EU countries and could exceed 4.5% this year. I should mention at the outset that this figure is higher than the one in the book which you see in the room as new data released by the authorities late last week led us to revise our forecast upwards after it went to print. This is good news!

Slovenia’s public finances have improved, and unemployment is falling. We expect the unemployment rate to drop below 6% during 2018, from above 10% five years earlier.Income inequality is rather low in Slovenia and the country also does well in terms of environmental outcomes. These positive developments are the fruits of successful structural reforms – a restructuring of the business sector that has made it more competitive; monetary conditions that remain supportive; and faster growth in export markets.

This year's Economic Survey explores three key challenges: sustaining the current expansion; dealing with population ageing; and boosting productivity, including through investment in skills and human capital. Allow me to elaborate on each of these themes in turn.

Continued progress will hinge on tackling emerging labour market bottlenecks

Slovenia’s emerging labour market bottlenecks will need to be addressed if its recovery is to be sustained. While the seasonally-adjusted unemployment rate has dipped below 7%, those left without jobs are increasingly difficult-to-employ low-skilled and older workers. Investments in skills will be crucial (I will return to this point in a moment). Strengthening activation policies can help, as suggested by last year’s OECD report on Slovenia on Connecting People with Jobs.

In addition, wage settlements need to be better aligned with productivity developments. More decentralised wage bargaining would help, as would the elimination of the current legal requirement that wages increase automatically with age.

Slovenia will also need to look closely at its minimum wage. Wage levels shape the incentives faced by firms as they hire workers with different skill levels, as well as the incentives for low-skilled workers to pursue opportunities for upskilling.

Slovenia will need to ensure sound public finances and tackle spending pressures from population ageing

Slovenia will also need to ensure that its public finances are sustainable. They have already improved, with the budget deficit having declined to 1.8% of GDP and debt to below 80% of GDP (Maastricht definition). Welcome fiscal consolidation is planned, but should be front-loaded to dampen overall demand. Indeed, if no action is taken now, public debt will start to increase again around 2030.

Ageing-related spending pressures are an important consideration. Total ageing-related spending is projected to increase by 6.9 percentage points of GDP by 2060, well above the projected EU average increase of 1.7 percentage points. Higher pension spending is projected to account for about half of this increase in Slovenia. The ongoing social dialogue should help identify solutions to Slovenia’s pensions issue, which is understandably a sensitive one. Our Survey recommends that the primary focus of Slovenia’s efforts should be on increasing both the statutory as well as the effective pension ages.

Initial steps have already been taken to reform health and long-term care. Population ageing calls for a flexible health-care sector that continuously adjusts its services to meet evolving needs. Achieving this will require hospitals to become more autonomous in their planning and investment decisions.

But while health and pension reform will be important, they will not, alone, be sufficient to restrain spending. Public spending will also need to be cut in other ways. The alternative – a rise in the tax burden – may harm Slovenia’s competitiveness.

Continued economic prosperity requires more investment in human and physical capital

More than ever before, today’s workers need to be equipped with the skills needed to succeed in the labour market.

Vocational education graduates often have poor general skills and stand to benefit from greater problem-based learning, combined with a retraining of teachers. Slovenia could also make greater use of vouchers and tax credits to help individuals improve their skills through lifelong learning.

Universities will need to adjust their courses to the changing needs of the labour market. They have already started a dialogue on this issue, which is commendable. More could be done, for example, to link university funding to students' labour market outcomes. The requirement that all courses be available in Slovenian should also be revisited.

We also recommend that tuition fees for full- and part-time students be equalised, and that grants and income-contingent loans should help to support students from disadvantaged backgrounds.

Efforts to enhance competition and improve regulation will be crucial to foster productivity

The investments in human capital that I have just described will need to be matched with efforts to boost competition and improve regulation in Slovenia.

Competitive firms have stronger investment incentives, and are beneficial for consumers through lower prices and greater choice. In particular investments in knowledge-based capital are crucial to help raise productivity through faster adoption of new technologies, including digital technologies. Slovenia is currently a middle-ranked country in terms of the share of intangible capital in total investment, such as R&D, software, and design and has, thus, room to do much better.

Our Survey points to the need for a better staffed competition authority and a simplification of the complicated two-step judicial proceedings. More sectors of the Slovenian economy should be opened up to competition, including regulated professions. Network industries would benefit from state-owned enterprises effectively separating their activities, requiring non-discriminatory third-party access to network infrastructure.

Finally, more needs to be done to improve the management of state-owned enterprises. During the crisis, public companies, and the banks in particular, required subsidies of some 20% of GDP. The creation of the Slovenian State Holding company is a step in the right direction. But more needs to be done: executive pay should better reflect performance, and supervisory boards should become more professional. Conglomerates would do well to refocus on their core activities, and the group of strategic state-owned enterprises should be narrowed down based on clearly defined objectives.

The OECD will continue to work with Slovenia and for Slovenia

Madam Minister, dear colleagues,

In all of these areas and others, the OECD is working with Slovenia and for Slovenia. Allow me to mention just a couple of examples:

The OECD is proud to have supported Slovenia in the elaboration of its National Development Strategy, which we believe is truly pioneering in its approach. Looking ahead, I believe it could provide a useful framework for prioritising and navigating reforms, balancing economic, social and environmental priorities, and ensuring that Slovenia delivers on the Sustainable Development Goals.

In June this year, we launched the diagnostic report underpinning our work with Slovenia on a National Skills Strategy. We look forward to embarking on the Action Phase over the coming months.

And tomorrow, our Public Governance team will co-host the first of a series of international workshops on Systems Change in Government here in Slovenia, under the leadership of Minister Boris Koprivnikar.

In short: we are extremely proud of the OECD’s strong partnership with Slovenia. Together, I believe that we are well placed to design, develop and deliver Better Policies for Better Lives in Slovenia.